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The amount of money to fund section II at 100 percent would be about $11 million. If we got 60 percent of that money we would be getting $6 or $7 million.

So the money we are talking about is $4 or $5 million, in that range. But a majority of that or a large part would come to these 170 school districts throughout the country.

So when the Fallbrook School District for example, probably 80 percent of all the land has been acquired by the Federal Government since 1938 and is in the school district. So that is the basic problem.

Maybe what we are seeking would require a change in the law. We don't know. We would ask our counsel to help us later on that. It may be beyond the capacity of this committee to make the change without legislation. We don't know that.

So I call on Mr. Hinshaw to give you some of the figures.
Thank you, Mr. Chairman.

Chairman PERKINS. All right.

Mr. HINSHAW. Mr. Chairman, dealing with just section II only for the Fallbrook Union School District, which is an elementary school district, to receive 100 percent of funding they would have received or have been receiving $565,000.

Under the tier 1 provision of existing law, 93-380, they receive $141,250.

Under tier 2 they receive $197,750 for a grand total of $339,000.
This means a loss to that school district of $226,000.

When we recognize that the enrollment in that elementary school district is 2.840 students that is an operating budget for that school district of $3,818,000.

With the loss of $226,000 under the changed provisions of section II that means that is a loss of 6 percent of the operating budget, solely to this provision of the law.

When we go to the Fallbrook Union High School District we find under tier 1 they are getting $110,750 and under tier 2, $155,050 for a grand total of $265,800.

Previously at 100 percent it would have retained $443,000.

This means there is a loss over the previous year of $177,000.

In that high school district they have an enrollment of 1,700 students. They have an operating budget of $2,808,000. A loss of $177,000 is 612 percent of the operating budget due solely to the loss of this section II money.

In the Oceanside Unified School District under tier 1 they would get under the existing law $312,500.

Under tier 2, $437,500, for a grant total of $750,000.

At 100 percent funding they would receive $1,250,000. That means a loss to this unified school district of Oceanside of $500,000.

Mr. Chairman, I should point out that the assessed value of the land only at Camp Pendleton, Calif., a Marine base in California which Mr. Burgener has indicated was acquired since 1938, the total assessed value of that land in the school districts is over $50 million and there are 128,000 acres on that base.

We have a tremendous impact on just these three school districts, as you can see, losing fantastic percentages of their budget.

Mr. Chairman, I also do not know whether it will require a change in the law but it doesn't seem to me possible that for such a small fraction of impact aid the change in the law would have such a dramatic

impact on school districts in an urban area as well as in somewhat of a rural area.

Mr. Chairman, I thank you for the opportunity of appearing before the committee today. I sincerely hope that we can solve the dilemma of the school districts in this respect.

Chairman PERKINS. Let me thank you gentlemen very much for your appearance here this morning.

We will do our best to see if we cannot correct some of these inequities.

Mr. BURGENER. Thank you, Mr. Chairman.

Mr. HINSHAW. Thank you.

Chairman PERKINS. Our next witness is the Commissioner of Education, Dr. Bell.

Go ahead, Dr. Bell. We would like for you in general to depart from your prepared statement and give us the reasons why you have these cutbacks and are considering only current expenditures, whether you are going ahead with considering debt service and all these things. Just go ahead.

[Prepared statement of T. H. Bell follows:]


Mr. Chairman and Members of the Committee: It is my pleasure to appear before you this morning to review the status of the changes in the Impact Aid Program called for in P.L. 93-380, The Education Amendments of 1974, and to discuss the Administration's proposed changes in the law for Fiscal Year 1976. The Education Amendments of 1974 have revised substantially the P.L. 874 authorization language. Entitlement formulas and methods of making payments are drastically changed. As a result, what was a complex law has become even more complex and confusing to both applicants and administrators.


The major implementation problem for Fiscal Year 1975 relates to the question of equalization. As you know, a provision exists in Section 5(d) (2) of P.L. 874 which prohibits States from taking impact aid payments into consideration when determining eligibity for, or the amount of, State funding. Because of this prohibition, school districts in some States received payments under the State aid program and under P.L. 874 which in some cases result in windfalls. To counteract the adverse effects of this prohibition Congress has added via P.L. 93-380 a means whereby this prohibition may in effect be waived in cases where. States have a viable equalization program.

Under Section 5(d) (3), a State is permitted to take into consideration SAFA payments to a school district in the determination of State aid under a State aid program designed to equalize expenditures among local educational agencies. The SAFA payments may be taken into account in determining relative resources or relative need for purposes of the State aid program but only (to use the statutory language) "in proportion to the share that local revenues covered under [the] State equalization program are of total local revenues".

In order to implement this amendment, the Commissioner is required to promulgate regulations containing standards for determining which programs of State aid qualify for the exception. Members of my staff have worked hard to develop these regulations from a number of alternative approaches. We set forth our tentative approach to the problem in a so-called "concept paper" which was shared and discussed with representatives of affected state educational agencies, local educational agencies, and other interested persons, as well as with interested congressional staff members. We are now considering comments received in connection with drafting the actual notice of proposed rulemaking for clearance within the Office of Education and the Department.

Under our current thinking, a State aid program would be evaluated under Section 5(d) (3) in terms of a basic standard which would measure the degree of disparity in revenue or expenditure per pupil among local educational agen

cies in the State. If such disparity was no greater than 20 percent, then the program would be deemed to qualify for the exception and SAFA payments could be taken into account for the affected districts but only in the proportion allowed by the statute. In the calculation of the disparity, allowance would be made for expenditures for children with special educational needs so as not to adversely affect a State aid program which took such needs into account in its distribution of State aid. If the program did not qualify under this so-called "disparity" test, but the State could show that the application of that standard to the program was inequitable because of peculiar circumstances related to expenditures in that State, then the program might, nevertheless, qualify under a set of evaluative criteria which would take into account such matters as the degree of school revenues equalized, whether education expenditures were predominantly a function of school district wealth, and the like. Provision, of course, would be made for administrative determinations and hearings.

In our reflection on this subject, we have been guided by indications in the legislative history that the Section 5(d) (3) exception was not to be "widely used" and that the Commissioner should make "very careful and deliberate determinations" in granting exemptions (H.R. Rept. 93-805, at 42-43). In addition, our views have been refined as a result of comments on our concept both from affected State and local educational agencies and congressonal staff. We will move as quickly as we can to place in the Federal Register a notice of proposed rulemaking which will permit all parties to react formally to our regulatory proposal. At the conclusion of the rulemaking process, we will be in a position to make determinations under Section 5(d) (3), including determinations for those several States which were previously found out of compliance with Section 5(d) (2).


A number of other important changes are scheduled to go into effect in FY 1976. These include:

Creation of several subcategories of "A" children;

Exclusion from A and B categories children whose parents are employed outside the State of the school district (but school districts must continue to survey and claim these children for possible eligibility under one of the hold-harmless clauses);

Counting all children who reside on Indian lands in the A category regardless of the employment status of their parents;

Establishment of new subcategories for B children to provide varying local contribution rates for children who reside on Federal property only, those whose parents are employed in the same county as the school district, those employed out of the county but in the same State, and those in the Uniformed Services; Addition of a payment for handicapped children of parents in the Uniformed Services in both A and B categories equal to one and a half times the usual rate if a special program for their educational needs is being provided;

Provision of three tiers for making payments when appropriations are not sufficient to provide full entitlement;

Authorization of payments for low-rent housing children in the first and third tiers but not in the second. Such payments must be used for programs and projects designed to meet the special educational needs of educationally deprived children from low-income families;

Modification and extension of assistance for decreases in Federal activities; New hold-harmless provisions (two of which begin in FY 1975).

While we agree with some of these changes, and, in fact, include them in our own bill, we do anticipate major administrative problems with the majority. Entitlements

I shall try to illustrate the complexities of computing an entitlement for a local education agency by referring you to the chart we have supplied each member. The upper half of the chart shows the various categories of "A" children and entitlement assuming a uniform local contribution rate of $500. The lower half of the chart reveals the various "B" categories of pupils in the same manner. In this illustration a school district would be entitled to the dollar amount times the number of pupils in each category or subcategory. If the district has 25 percent or more of its Average Daily Attendance comprised of "A" category pupils it is entitled to 100 percent of the local contribution rate of each subcategory "A" pupil.


It is even harder to determine how much a district should receive in payment. The Act calls for three levels or tiers of funding. The first tier provides for 25 percent of the funds for each category of entitlement including children residing in low-rent housing. Template No. 1 shows the first tier funding. Template No. 2 shows the second tier funding. This is authorized only if sufficient funds are available to fully fund each of the categories. Tier 3 would fund each category in proportion to the amount of unpaid entitlement if appropriations were insufficient to fully fund all entitlements.

Estimated requirements for regular entitlements in Fiscal Year 1976 and the payment tiers are attached. In order to estimate payment tiers, it was necessary to place all low-rent housing pupils in the "B" category even though we are certain that some qualify as "A" students because we believe that some Uniformed Services personnel and some employees working on Federal property reside in low-rent housing. Although this causes an inaccuracy in the table showing estimated entitlements, it may be necessary to retain all low-rent housing pupils in the "B" category for both entitlement and payment purposes in order to monitor the funds.

Another complication in the tracking of funds will occur with the handicapped child of the Uniform Services parent residing in low-rent housing, or the handicapped child of the Uniformed Services parent residing on Indian lands.

The table reflects rough estimates especially of pupils "in-county", "out-ofcounty", and "out-of-State." We hope to refine some of the estimates soon by using a newly-created Property Certification Automated System-perhaps as early as late March or April.

The amendments creating new subcategories of "A" and "B" children present major administrative problems especially with regard to our present automated payment system. For example, where formerly two computations were necessary to compute entitlements for "A" and "B" children, now at least 21 separate computations must be made. This large number is essential in order to treat the subcategories differently in the second and third payment tiers, identify amounts for low-rent and handicapped pupils, and determine amounts for use in the various hold-harmless provisions. Formerly there was only one additional computation (for proration) following the entitlement computation. Now there will be four, one for each of the three payment tiers and the total. Moreover, the present computer form which details the computation of entitlement, prorated. entitlement, and payment and which is sent to the applicant along with his check, to Congress for notification, and to the States, undoubtedly will expand from one to two pages. The computer can, of course, accomplish these computations without difficulty once it has been programmed and tested for accuracy, but this total process which includes collection and verification of data and processing of applications will make it difficult to pay local educational agencies on a timely basis.

Another action consuming time and manpower will be the necessary explaining to applicants and State Departments of Education by visit, telephone inquiry, and letters, in more detail than can be provided by a computer form, the basis of entitlements, payments provided in the various tiers, amounts provided by the hold-harmless provisions, and/or reasons for ineligibility under any of the provisions.

Hold-harmless provisions

There are four new hold-harmless provisions which:

Guarantee minimum payment of 80 percent or in cases where 10 percent or more Federally connected children are involved 90 percent of previous year's payment to all applicants;

Guarantee minimum payment of 90 percent of previous year's entitlement to school districts losing 10 percent or more Federally connected children during FY 1974 and FY 1975 due to decrease or cessation of Federal activities affecting military installations announced after April 16, 1973;

Guarantee minimum payment of 90 percent of previous year's payment for "B" children if the number of out-of- county and out-of-State "B" children is at least 10 percent of total "B" children; and

Guarantee the difference between payment received from an appropriation shared with low-rent housing pupils and the payment that would have been received if the appropriation were not so shared.

The first two of these provisions are applicable in Fiscal Year 1975.

All of these provisions present problems. If the first hold-harmless was "designed to reduce the impact of changes in entitlements," as the Conference Report states, then it should not become effective until 1976 when the major changes occur. Since it is scheduled to become operative in 1975 one might conclude that it was also designed as insurance against low levels of funding for “A” and “B” children. For example, an applicant who received a special payment in 1974 for a substantial decrease in federally connected children would be unlikely to remain eligible for another such payment in 1975. In this case it is possible that the 1975 payment will be less than 80 percent or 90 percent of the 1974 payment. Then such an applicant would benefit from the provision. If the intention was to fund all such applications for several years on this special basis, they could easily have been included in the second hold-harmless clause which presently relates only to military decreases and which can be funded from the regular appropriation. The first hold-harmless must be funded separately from the regular appropriation.

The requirement that estimates for two of the hold-harmless provisions be furnished within 15 days of a regular appropriation is unreasonable. It is impossible to predict the numerous changes in entitlements and then apply all of the hold-harmless provisions to each changed entitlement and to other holdharmless provisions before all applications are initially processed. Since final reports are not due until September 30 and cannot be fully processed until the end of the next fiscal year, it is more reasonable to request estimates for the hold-harmless provisions at the end of the first fiscal year following the fiscal year of entitlement. Or, estimates for about three-fourths of the school districts could be ready by the end of January following the close of the fiscal year. However, such action does not permit making funds available to an LEA, if required, in the year of application.

Inequities in impact aid

In addition to the administrative problems discussed above, I think it would be useful to reiterate this Administration's concern with the inequities in the impact aid program. The following items are based upon the findings of the Battelle Memorial Institute Study of five years ago, but, unfortunately, these conditions remain essentially unchanged and would be only slightly modified by the new provisions of P.L. 93-380.

In general, current impact aid payments result in unjustified payments to many school districts, and thus constitute an inequitable use of Federal funds. The major sources of impact aid "windfalls" which still prevail are:

Payments that far exceed the costs of the local government of educating Federal pupils.

Payments to districts that, even without the Federal assistance, are wealthy and well able to support their own schools from local sources with a lower tax effort than most districts in the State.

Payments based on non-taxability of Federal property where activity on that property generates taxes sufficient to defray the education costs of children of persons working on the property.

Double payments to districts that receive funds through in-lieu-of-taxes payments or shared revenues and again through impact aid.

Double payments to districts that receive funds from their State government on an equalization formula.

Higher per pupil payments to rich districts than to poor ones resulting from the methods used to calculate the rate of payment.

Payments based upon children who would likely be attending schools there even if the Federal government had never come into the district.

Payments that do not reflect the economic stimulus that the Federal government may cause in a community.

As a result of such overpayments, districts with a large percentage of federally-connected students are characterized by lower pupil-teacher ratios, higher per pupil expenditures, and lower tax rates than districts with less Federal impact or no impact at all.

Theoretically there should be some reduction in the payments to the wealthier districts, particularly in the Washington, D.C. area, as a result of new provisions giving no payment to out-of-State "B" pupils, but the operation of the variety of "hold-harmless" provisions including one directed specifically at that situation push any real reduction far into the future.

Facing this kind of inequity in a program which has continued to grow in appropriations, the Administration proposes to simplify impact aid and focus

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